Cardano (ADA): What It Is, How It Differs From Bitcoin

What Is Cardano (ADA)?

Cardano (ADA) is a decentralized Proof-of-Stake (PoS) blockchain designed to be more efficient than blockchains that rely on Proof-of-Work (PoW). Similar to Ethereum, Cardano's PoS consensus mechanism uses and rewards cryptocurrency for work done to review and expand the historical blockchain record.

Cardano is intended to evolve into a system for decentralized applications (dApps) with multiple use cases governed by stakers. The blockchain's cryptocurrency token is named ADA after Augusta Ada King, Countess of Lovelace, an English aristocrat commonly regarded as the first computer programmer. ADA can also be purchased on most major cryptocurrency wallets and cryptocurrency exchanges.

History of Cardano (ADA)

Charles Hoskinson, an Ethereum co-founder who left the project due to disagreements with the direction of Ethereum, began developing Cardano in 2015 and launched the blockchain network with the first mined block in 2017.

Cardano considers itself an updated version of and has positioned itself as an alternative to Ethereum, anointing itself a “third-generation” platform compared with Ethereum’s “second-generation” credentials. Cardano has a self-proclaimed goal of providing banking services to the world’s unbanked.

An eponymous non-profit foundation, the Cardano Foundation, was established in 2017 to oversee the development of the Cardano blockchain and to promote its adoption. Prior to that, IOHK, an engineering company, was the primary developer of the Cardano blockchain. Throughout its history, the Cardano blockchain has undergone four notable hard forks in its history: the Shelley, Alonzo, Vasil, and Valentine hard forks.

The Shelley hard fork transitioned Cardano from a federated Byzantine Fault Tolerance (fBFT) consensus mechanism to a more decentralized PoS consensus mechanism called Ouroboros. The Alonzo hard fork enabled smart contracts on the Cardano blockchain for the first time, opening up the possibility for a wide range of dApps to be built on Cardano. The Vasil hard fork brought scalability upgrades to further improve dApp functionality, such as increased block size, improved transaction processing, and new scripting capabilities.

In February 2023, the Valentine upgrade occurred, causing another (planned) hard fork. The purpose of this update was to allow more efficient cross-chain applications to be built and add support for other protocols.

Cardano vs. Ethereum

Both the Cardano and Ethereum blockchain platforms are used for responsive applications and aim to build a connected system similar to the Apple and Android store, but decentralized. The most prominent features offered by Cardano and Ethereum to support dApps are their use of smart contracts and a PoS blockchain algorithm. Cardano had a staking mechanism long before Ethereum did, but it only recently supported smart contracts.

Smart Contracts

Cardano implemented smart contract support in 2021 with its Alonzo update. This update took place on Cardano's test network, a beta version of the blockchain, and was the first iteration of bringing promised scalability and interoperability to users.

Smart contracts allowed Cardano developers to create dApps such as non-fungible tokens (NFTs) and manage multiple cryptocurrency assets associated with these dApps. Future releases and forks of Cardano are expected to formally bring smart contract capabilities to the main network, the official version of the blockchain.

Cryptocurrency Staking

Cardano uses a PoS consensus mechanism, in which users "stake" the blockchain's cryptocurrency for the opportunity to become a validator. A stake is a pledge of a certain amount of ADA cryptocurrency to represent and secure validator rights in the Cardano network. ADA cannot be used or spent while it is staked because it must be held as collateral to incentivize honest validation behavior.

Validators open and finalize blocks of transactions and are rewarded with ADA from other validators based on the number of tokens they have staked. Users can participate in the validation process by creating or joining a pool, which can be public or private.

Staking pools consist of one or more trusted server nodes that conduct the work of validating transactions, updating the ledger, opening new blocks, and earning rewards. Public pools distribute rewards to members based on how much Ada they have staked. Private pools, as the name suggests, give rewards to their sole owners.

A Cardano staking pool must be run by an operator with the technical knowledge and skills to maintain the stake pool by renting servers, monitoring the node, holding the pool key, and conducting other pool administration tasks.

Cardano vs. Bitcoin

Bitcoin was developed as a peer-to-peer payment system, while Cardano is focused on fostering a general blockchain ecosystem that allows developers to create other tokens, dApps, or any uses a scalable blockchain network can host.

The Cardano platform's PoS consensus mechanism relies on staking to validate transactions and reward cryptocurrency to validators, whereas Bitcoin's PoW relies on cryptocurrency mining. Cardano's PoS expends drastically less energy than Bitcoin's PoW by removing the need to have computers gobbling up large amounts of electricity to power complex mining calculations.

Cardano's PoS consensus mechanism also makes its validation process more accessible to the average user than Bitcoin's PoW. Cardano staking can be done simply by installing compatible wallet software on computers or devices—Bitcoin mining can also be done this way, but it is not very efficient, even if it is done through a pool, which is the least commitment-intensive option for mining.

Future of Cardano

Cardano is designed to be developed in “eras” named after notable figures in poetry and computer science history: Byron, Shelley, Goguen, Basho, and Voltaire. Basho, Cardano's current era, is focused on bringing scaling and optimization capabilities to Cardano. As of April 2024, Cardano is anticipating the transition from Basho to Voltaire.

Voltaire, Cardano's final era of development, is intended to bring voting and treasury management to the blockchain network through particular smart contract functionalities and system improvements.

The Bottom Line

Cardano is a decentralized PoS blockchain founded in 2015 and launched in 2017. It has positioned itself as an alternative to PoW blockchains like Bitcoin because it is more energy-efficient and scalable.

The plans behind Cardano’s development are ambitious. Its developers see Cardano as eventually becoming fully decentralized when voting and treasury management of blockchain are added to its capabilities in the future.

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